Sections 68 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
These three sections deal with capital gains in company-specific events. Section 68 covers distribution of a company's assets on liquidation, section 69 covers a company's purchase of its own shares or other specified securities, and section 71 withdraws the exemption for certain intra-group and reorganisation transfers when conditions are broken. The reading is as per the Income-tax Act, 2025 as amended by the Finance Act, 2026; later amendments, rules and notifications should be checked. For help computing the gain, see our capital gains calculation service.
On liquidation, the company is not treated as transferring its assets (section 68(1)); the shareholder is taxed on money received or the market value of assets, reduced by the amount assessed as dividend (section 68(2)). On a buy-back, the shareholder's gain is the difference between cost of acquisition and the consideration (section 69(1)); where a promoter is involved, additional income-tax is payable at the Table rates. Sub-sections (2) and (3) of section 69 are as substituted by the Finance Act, 2026 (section 42 of that Act), with effect from 1 April 2026.
Section 68: distribution on liquidation
Section 68(1). Irrespective of anything in section 67, where a company's assets are distributed to its shareholders on its liquidation, the distribution is not regarded as a transfer by the company for the purposes of section 67. The company therefore has no capital gain on the distribution.
Section 68(2). If a shareholder receives money or other assets from the company on its liquidation:
- (a) the shareholder is chargeable to income-tax under "Capital gains" on the money received or the market value of the other assets on the date of distribution, as reduced by the amount assessed as dividend within the meaning of section 2(40)(c); and
- (b) the sum so arrived at is deemed to be the full value of consideration for section 72.
Example (invented). Tara holds shares in a company that goes into liquidation. She receives Rs. 10,00,000 in money and an asset whose market value on the date of distribution is Rs. 4,00,000. Rs. 3,00,000 of the receipts is assessed as dividend within section 2(40)(c). Full value of consideration = 10,00,000 + 4,00,000 – 3,00,000 = Rs. 11,00,000. The computation of the gain from there is in section 72.
Section 69: a company buys its own shares or other specified securities
Sub-section (1): the shareholder's gain
If a shareholder or a holder of other specified securities receives consideration from any company for the purchase of its own shares or other specified securities, then, subject to section 72, the difference between the cost of acquisition and the value of the consideration received is deemed to be the "Capital gains" arising to the holder, in the year in which the company purchases the shares or securities.
Sub-section (2): additional income-tax for promoters
Where a company purchases its own shares or other specified securities in accordance with section 68 of the Companies Act, 2013, and the holder is a promoter, the aggregate income-tax payable on the capital gains is the sum of:
- (a) the income-tax payable on such gains in accordance with the Act; and
- (b) an additional income-tax on the capital gains in column B of the Table, at the rate in column C or column D.
| Serial number | Income | Rate where the promoter is a domestic company | Rate where the promoter is other than a domestic company |
|---|---|---|---|
| 1 | Short-term capital gains referred to in section 196 arising from the transfer of such securities | 2% | 10% |
| 2 | Long-term capital gains referred to in section 197 or section 198 arising from the transfer of such securities | 9.5% | 17.5% |
Example (invented). Vantage Holdings Pvt. Ltd., a domestic company and a promoter, has long-term capital gains of Rs. 20,00,000 on securities bought back under section 68 of the Companies Act, 2013. The additional income-tax at serial number 2, column C, is 9.5% of Rs. 20,00,000 = Rs. 1,90,000, over and above the income-tax payable in accordance with the Act. If the same gain belonged to a promoter that is not a domestic company, column D would apply: 17.5% of Rs. 20,00,000 = Rs. 3,50,000.
The sections that tax the gains are covered in the live notes on short-term gains on equity (section 196), long-term gains (section 197) and long-term gains on equity (section 198).
Sub-section (3): meanings
- Promoter (listed company): the meaning in regulation 2(k) of the Securities and Exchange Board of India (Buy-Back of Securities) Regulations, 2018, made under the Securities and Exchange Board of India Act, 1992.
- Promoter (any other case): a "promoter" as defined in section 2(69) of the Companies Act, 2013, or a person who holds, directly or indirectly, more than 10% of the shareholding in the company.
- Specified securities: the meaning in Explanation 1 to section 68 of the Companies Act, 2013.
These references are quoted as printed; check the Companies Act, 2013 and the SEBI regulations. The Act does not itself list which securities are "specified securities" beyond that reference.
Finance Act, 2026
Sub-sections (2) and (3) are printed in square brackets, with a footnote recording that they were substituted by the Finance Act, 2026, with effect from 1 April 2026. The page break puts the footnote in the middle of sub-section (3); the clause (c) of sub-section (3) continues after it. The wording they replaced is not law and is not explained here.
Section 71: when the exemption is withdrawn
Section 70 lists transfers that section 67 does not apply to (see section 70). Section 71 takes the benefit back in certain cases.
Section 71(1) concerns transfers not charged under section 67 by virtue of section 70(1)(c) and (d), which are transfers between a parent and its wholly owned Indian subsidiary or the reverse. The profits or gains are deemed to be income under "Capital gains" of the tax year in which the transfer took place, irrespective of those clauses, if at any time before the expiry of eight years from the date of the transfer:
- (a) the transferee company converts the capital asset into, or treats it as, stock-in-trade of its business; or
- (b) the parent company or its nominees, or the holding company, ceases to hold the whole of the share capital of the subsidiary company.
Section 71(2) says that if any of the conditions laid down in "section 70(zd) or (zf)" (as printed) are not complied with, the profits or gains from the transfer of the capital asset or intangible asset not charged under section 67 by virtue of those conditions are deemed to be chargeable under "Capital gains" of the successor company, for the tax year in which the conditions are not complied with.
Section 71(3) says that if any of the conditions laid down in "section 70(ze)" (as printed) are not complied with, the profits or gains from the transfer of the capital asset, intangible assets or shares are deemed to be chargeable under "Capital gains" of the successor limited liability partnership or the shareholder of the predecessor company, for the tax year in which the conditions are not complied with.
The cross-references in sub-sections (2) and (3) are printed without the "(1)" that section 70 carries in its own numbering; this is flagged as printed and is not corrected here.
Example (invented). Helios Parent Ltd. transfers a capital asset (not stock-in-trade) to its wholly owned Indian subsidiary, and the transfer is outside section 67 under section 70(1)(c). Four years later the subsidiary treats the asset as stock-in-trade of its business. That is within eight years, so under section 71(1)(a) the gain is income under "Capital gains" of the tax year in which the original transfer took place.
Need help with capital gains in company events?
Liquidation receipts, buy-backs and group transfers each have their own computation and their own year of charge. Our capital gains calculation team can help you check the full value of consideration, the promoter's additional tax and the conditions that keep an exemption alive.
Key takeaways
- On liquidation, the shareholder is taxed; the company's distribution is not a transfer by it.
- The sum taxed on liquidation is reduced by the amount assessed as dividend within section 2(40)(c).
- A buy-back gain is the difference between cost of acquisition and consideration, in the year the company purchases.
- Promoters bear additional income-tax at 2% or 10% (short-term) and 9.5% or 17.5% (long-term), depending on whether they are domestic companies.
- Section 71 withdraws the exemption within eight years for group transfers, and on failure of the conditions of section 70 for reorganisations.
Read next
- Section 67: capital gains charge and year of taxability
- Sections 74–76: depreciable assets and market linked debentures
- Section 70: transactions not regarded as transfer
- Section 72: how capital gains are computed
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.